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Patrick Barron on the eurozone’s future

By Andy Duncan, on 16 January 13

Episode 86: Professor Patrick Barron is an Austrian School economist who teaches courses in banking and economics at the University of Wisconsin-Madison and the University of Iowa. He also writes regular pieces for Mises.org.

Professor Barron has put forward the idea that the only route out of the ongoing euro crisis for Germany is an initial return to the Deutschmark, followed preferably by a subsequent move to a golden Deutschmark. He discusses this idea with GoldMoney’s Andy Duncan, along with the three major obstacles to his desired outcome, which include a lack of current party-political support in Germany for this idea, along with outside political influences over Germany’s monetary policies, and the growing uncertainty over Germany’s access to its own physical gold supply.

As well as exploring the current financial situation in Europe, Professor Barron also comments upon the recent fiscal cliff event in the United States, and mentions the recent article in The New York Times, by Paul Krugman, on the subject of a special trillion dollar platinum coin. He explains why eventually he believes the US dollar will go back to a link with gold, and why he thinks the price of gold may then reach $38,000 dollars an ounce. Professor Barron runs his own website, which GoldMoney subscribers can find at www.patrickbarron.blogspot.com/.

The book mentioned heavily in the interview, The Tragedy of the Euro, by Professor Philipp Bagus, can be downloaded for free from this link.

This podcast was recorded on 11 January 2013 and previously published at GoldMoney.com.

6 comments to Patrick Barron on the eurozone’s future

Even if Germany were to go back on a gold standard, I’m not convinced that other countries would be forced to follow suit. What’s the logic here? If Jamaica were to go on the gold standard, would the rest of the world follow? If size matters, then how big does an economy need to be?

It seems to me that any country that was the first mover onto the gold standard would become the safe haven of choice in a world of wildly gyrating fiat risk. That country would attract capital beyond its wildest dreams and that would spark a race to emulate it by the rest of the world starving for capital. If that country was a big powerful country ,the stampede would be larger.

They would be forced mrg. If Germany backed their currency with gold, you would get capital flight from all other countries in the world towards them, causing hyperinflation. Would you rather have your money backed with actual money (gold), or would you rather your money backed by soon to be bankrupt, government promises? It’s a complete no brainer…

Don’t think the Germans will do it however. We are now all awaiting the Chinese. Once they have stockpiled 6,000 tonnes of gold, they will come out with a statement backing the renminbi with gold, which will become the de facto world reserve currency.

That will force all other countries to back their fiat currencies with gold, or peg their currencies to gold backed currencies. Those that already have the gold will be in the driving seat. The UK I’m afraid will be knackered. Thank you New Labour!

“If Germany backed their currency with gold, you would get capital flight from all other countries in the world towards them, causing hyperinflation. Would you rather have your money backed with actual money (gold), or would you rather your money backed by soon to be bankrupt, government promises? It’s a complete no brainer…”

I must be missing something obvious here …

At the moment, as a UK resident, money is GBP. If I lack faith in GBP, I have a range of ‘near monies’ to choose from, including EUR and gold. These can be converted to GBP fairly easily, but not without transaction costs and exchange rate risks.

I don’t need to have money backed by gold. If I want gold, I can just buy gold.

Now, I may want to invest a bit rather than just hold a cash (or near-cash) balance. Bonds are obviously a bad idea if they’re not inflation linked and they’re denominated in a depreciating currency. If I buy shares in a company, however, I enjoy some protection against inflation, as we can expect company revenues (and dividends, and share values) to rise in nominal terms as the currency is debased. With this assumption, it’s not obvious why I should invest in a Germany company rather than a British one.

I suppose a stable currency means that it’s easier for a German company to plan, but the difference shouldn’t be too great as long as inflation in the UK isn’t too extreme.

There’s also the fact that a gold-backed Deutschmark is really just a promise by the government to maintain a hard currency. They could decide at any time to abandon the link with gold. It’s not worth much more than a promise not to print money.

In the near term, gold’s purchasing power in GBP is really quite volatile. A gold-backed Deutschmark would suffer from the same problem, so I don’t think ordinary people would rush to exchange their GBP balances for golden Deutschmarks.

A free market person who teaches at Wisconsin-Madison! Richard Ely must be spinning in his grave.

On gold and the Dollar – of course to talk of a gold “standard” can mean anything-nothing (which is why I avoid the term “standard”).

However, if a “Dollar” is (if the change is made – a big if) simply whatever amount of gold the government physically has, divided by the number of Dollars, then thirty eight thousand Dollars an ounce sounds about right.